Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

13) COMMITMENTS AND CONTINGENCIES

Litigation

We are involved in claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and LAE during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.

On October 20, 2023, we received notice that the DFS filed a notice of claim and demand for tender of insurance policy limits under our director and officer insurance to carriers participating in the our director and officer’s insurance program (the “Claim”). The Claim alleges that former officers and directors of UPC were involved in wrongful acts that resulting in UPCs insolvency and demands immediate tender of our director and officer’s policy limit of $40,000,000 where we have a retention of $1,500,000. The former directors and officers of UPC deny the allegations. Although no litigation has arisen from the Claim, litigation is anticipated. We anticipate that directors and officers will be successful in their defense; however, due to our indemnification obligation, we have accrued the policy retention amount of $1,500,000.

Commitments to fund partnership investments

We have fully funded one limited partnership investment. We have no unfunded commitments at December 31, 2023. The amount of unfunded commitments was $5,968,000 at December 31, 2022.

Leases

We, as lessee, have entered into leases of commercial office space of various term lengths. In addition to office space, we lease office equipment and a parking lot under operating leases and vehicles under finance leases.

The classification of operating and finance lease asset and liability balances within the Consolidated Balance Sheets was as follows:


	Financial Statement Line	December 31, 2023		December 31, 2022
Assets
Operating lease assets	Other assets	$	593	$	1,278
Financing lease assets	Property and equipment, net	—		51
Total lease assets		$	593	$	1,329

Liabilities
Operating lease liabilities	Operating lease liability	$	776	$	1,689
Financing lease liabilities	Other liabilities	—		2
Total lease liabilities		$	776	$	1,691

The components of lease expenses were as follows:


	Years ended December 31,
	2023		2022
Operating lease expense	$	777	$	943
Financing lease expense:
Amortization of leased assets	9		358
Interest on lease liabilities	—		1
Short-term lease expense	—		—
Net lease expense	$	786	$	1,302

At December 31, 2023, future minimum gross lease payments relating to these non-cancellable operating and finance lease agreements were as follows:


	Operating Leases		Finance Leases		Total
2024	$	597	$	—	$	597
2025	226		—		226
2026	11		—		11
2027	—		—		—
2028	—		—		—
Thereafter	—		—		—
Total undiscounted future minimum lease payments	834		—		834
Less: Imputed interest	(58)		—		(58)
Present value of lease liabilities	$	776	$	—	$	776

Weighted average remaining lease term and discount rate related to operating and finance leases were as follows:


	December 31, 2023		December 31, 2022
Weighted average remaining lease term (months)
Operating leases	17		25
Financing leases	—		9

Weighted average discount rate
Operating leases	3.30	%	3.79	%
Financing leases	—	%	3.27	%

Other cash and non-cash related activities were as follows:


	Years ended December 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities
Investing cash flows from financing leases	$	—	$	—

Right-of-use assets obtained in exchange for new operating lease liabilities	13		—
Right-of-use assets obtained in exchange for new financing lease liabilities	—		—

Financing lease amortization expenses are included in depreciation expense in our Consolidated Statements of Comprehensive Loss. See Note 8 for information regarding depreciation expense. See Note 12 for information regarding commitments related to long-term debt, and Note 16 for commitments related to regulatory actions.

Subleases

We previously leased and occupied office space in which we no longer operate. Effective October 1, 2022, this office space is now subleased to a third-party. This sublease is effective from October 1, 2022, through July 31, 2025, with no option to extend. As of December 31, 2023, we recognized $198,000 of income related to this sublease, exclusive of the lease expense associated with the original lease.

Additionally, as a result of the sublease, we evaluated our right-of-use asset associated with the original lease for impairment, using the undiscounted cash flows from the sublease. During the year ended December 31, 2022, we recognized impairment of $175,000, which was recognized in the results of our personal lines operating segment.

Employee Retention Credit

A series of legislation was enacted in the United States during 2020 and 2021 in response to the COVID-19 pandemic that provided financial relief for businesses impacted by government-mandated shutdowns, work stoppages, or other losses suffered by employers. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided an employee retention credit, which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee. During the second quarter of 2022, we evaluated our eligibility and filed for a $10,161,000 refund in connection with our Employee Retention Tax Credit for the tax year ended December 31, 2021. As of December 31, 2023, we have received $5,718,000 from the IRS related to this refund. A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We have not recognized this gain contingency of $10,161,000 within our financial statements except for the $5,718,000 that has already been received.

We will continue to monitor the matter for further developments that could affect the outcome of these contingencies and will make any appropriate adjustments each quarter.

Quota Share Commission Loss Contingency

AmCoastal participates in shared quota-share reinsurance agreements with our former subsidiary, UPC, which are subject to a variable ceding commission based on loss experience. With the receivership of UPC in 2023, we have not received data related to UPC losses that could shift AmCoastal’s commission related to these contracts unfavorably. In addition, we cannot reasonably determine how this shift will be allocated between the contracted parties. Until we receive this loss data and provide the updated calculations to both our reinsurance partners and the DFS as receiver of UPC, we are unable to estimate the impact, however, we believe a loss contingency related to these commissions may exist as of December 31, 2023.